NEW YORK, United States — Over the past month, American specialty retailer J.Crew has run at least one sales promotion every single day. Last weekend, it was 40 percent off, both in-store and online. In mid-April, it was a 30 percent discount, plus free shipping for online orders. At the beginning of the month, it was an additional 50 percent off final sale items. Indeed, J.Crew’s promotions have become so ubiquitous that, last year, one shopper made headlines for creating Threadstats, a website built solely to track the retailer’s sales promotions and help consumers score the best deal.

In March, J.Crew’s discounting strategy was back in the news when the company was sued in New York federal court for allegedly deceiving customers in a “systematic scheme of false and misleading advertising, marketing and sales practices” on its J.Crew Factory website, according to the complaint. The plaintiff, Joesph D’Aversa, maintains that the “valued at” price displayed alongside each item — which supposedly indicates the true retail price of a product — was misleading given that J.Crew Factory’s merchandise was always on sale.

And the issue goes far beyond J.Crew. Amongst American retailers, discounting has become so common that it’s a challenge to walk past specialty stores like J.Crew and Gap, or traditional department stores like Macy’s or JCPenney, without seeing red sale signs. (The practice has become so prevalent that handbag-maker Coach recently told analysts it was considering pulling it goods out of certain department store locations and would no longer participate in some store-wide sales and promotions).

While these promotions may benefit price-conscious consumers, the practice is unhealthy for retail industry players, for whom competing on price with deeper discounts is creating a race to the bottom, shrinking profit margins and diminished brand value, while making the path back to growth more difficult.

We’re on this 40 percent off drug that we pulse every weekend. When you take away your promotions, your shopper melts away because you’ve trained them to come back on that 40 percent off day.

Ubiquitous discounting wasn’t always the norm. Retailers could once count on consumers who had more brand loyalty and fewer options, and, on average, spent more on clothing. But the tumult of the Great Recession and the rise of e-commerce have made American shoppers more savvy and more frugal, resulting in lower store traffic and lower spending, even as the economy has recovered. To make matters worse, many retailers failed to anticipate changing consumer demand, manufacturing too much merchandise and over-expanding their brick-and-mortar store networks.

“As an industry, it took retail a very long time to learn some lessons on the ‘new normal’ — and, more importantly, what are the implications of new normal on my business?” says Adheer Bahulkar, a partner at A.T. Kearney, a global strategy and management consultancy firm. Instead, many legacy retailers, desperate for new sources of growth, turned to discounting. “The path of least resistance to growth for these retailers is to lower your price,” says Robin Lewis, chief executive of The Robin Report, a retail strategy report. “And when everybody’s doing that, it gets to be insane. It’s a race to the bottom for everybody because you cannot not compete on price.”

“Once you discount you get into this spiral because your margins get slimmer, and then you also have to sell so much more to make up for the lost margin on the price,” explains Denise Dahlhoff, the research director at the University of Pennsylvania’s Baker Retailing Center. “It’s sort of this vicious cycle that you get into.”

The issue is particularly pronounced in the US, where new European fast fashion players like H&M and Zara have been eating up market share. “The US is where you see a lot of the legacy-type models,” says Tim Barrett, a retail analyst at Euromonitor. “Gap, Abercrombie, J.Crew, Macy’s — all of these models don’t really work as well anymore especially when you take into account that they are overextended physically in a lot of areas where they are not going to be doing the business that they need to be doing.”

The rise of discounting at American retailers also reflects underlying differences in the way sales are deployed and perceived in the US compared to other markets. At Farfetch, a global e-commerce platform, 56.5 percent of products on the company’s US site are reduced by an average of 13.6 percent, while on the company’s UK site, 27.3 percent of products are discounted at an average of 20.2 percent. This kind of widespread but light discounting is common in the US, compared to the narrow and deep discounting often seen in the UK, notes Katie Smith, senior fashion and retail market analyst for Edited.

"The UK is in a slightly healthier discounting cycle, using it to clear products that aren't working and entice consumers in planned promotions,” explains Smith. “Price slashes are part of the regular conversation for the retailer and consumer in the US market."

“It’s almost like a drug,” says Tiffany Hogan, a retail analyst for Kantar Retail. “We’re on this 40 percent off drug that we pulse every weekend or even more frequently. What happens when you take away your promotions? Your shopper just kind of melts away because you know that you’ve trained them to come back on that 40 percent off day.”

But widespread discounting is unsustainable and as profit margins become slimmer and sales growth slows, retailers have turned to downsizing their store networks and company-wide layoffs to offset losses. In June 2015, Gap announced it was laying off 250 corporate employees and shuttering 175 stores, while J.Crew and Ralph Lauren cut 157 and 750 jobs respectively. At the beginning of this year, Macy’s set out a restructuring plan that involved 36 store closures and thousands of employee layoffs. (JCPenney outlined a similar plan in 2015, which included shuttering 40 stores and making around 2,250 employees redundant, following 2014, when the retailer laid off 2,000 employees and closed 33 locations.)

This month, Coach and Nordstrom announced plans to cut 300 and 400 employees respectively, with Nordstrom having already laid off 120 employees from its tech department in March.

“There’s this huge bubble of too many specialty stores, too many department stores,” says Hogan. “At some point there’s got to be a cooling off period, which is what I think we’re seeing now. Retailers reducing store counts, reducing their presence, just figuring out how they fit into a new apparel landscape.”

Adding fuel to the fire, the cost of making apparel hasn’t gotten any cheaper. “From a supply chain perspective, the cost at the manufacturing level is going up,” says Edward Hertzman, the publisher for Sourcing Journal, a publication that focuses on the apparel and textile industries. “Compliance costs, labor costs, energy costs, and the quality of living is improving. Whatever costs were saved from cotton prices or gas prices being down is really not offsetting the manufacturing costs in a way that you would hope. Then, you have retailers that have to discount in order to move goods so you have this margin compression,” continues Hertzman.

“Typically when you discount, [it’s] the last resort to get people to come to the store,” says Dahlhoff. “And when you are in that place, getting out is hard.”

A number of legacy retailers in the US have been investing in outlets to escape this vicious cycle. Their hope is that by clearly delineating discount merchandise in one type of store while full-price merchandise stays separate in the mainline stores, retailers can serve a range of customers while maintaining brand value.

Last summer, J.Crew introduced a new retail concept called J.Crew Mercantile as, essentially, a new home for J.Crew factory merchandise, and the company has plans to triple the number of Mercantile locations in 2016. As well, Macy’s, Kohl’s and Lord & Taylor were amongst the retailers that all launched off-price stores in 2015.

“These new off-price experiments are ways to evolve brands into new models without having to abandon the old models and upset legacy consumers or shoppers,” says Euromonitor’s Barrett.

Those department stores that were already operating off-price stores have also doubled down on these efforts. Today, Saks Fifth Avenue operates 90 Off Fifth locations to 40 full-priced stores. And as of March 2016, Nordstrom had 197 Nordstrom Rack locations, with a goal to operate 300 Rack stores by 2020. Comparatively, in the past five years, the number of full-priced stores grew from 115 to 118.

For retailers in the affordable luxury range, outlet stores are also seen as a boon. At the end of fiscal year 2015, Ralph Lauren operated 165 factory outlets in the US and Canada, compared to 58 full-price stores. (In Europe, the company owns 54 factory stores to its 27 regular stores, while Asia is the only market where it has more full-price stores than factory outlets — 58 to 40.)

Kate Spade had 64 outlet locations in the US at the end of fiscal 2015, up from 29 in 2010. Similarly, of the 351 full-priced stores Coach operated at the end of fiscal 2013, the company has closed nearly 100, while growing the number of outlets from 193 to 204.

But will it work?

“From a consumer perspective, I think anything where they can find a great discount on a product is a win-win situation for them,” says Pam Goodfellow, the director of consumer insights at Prosper Analytics. For retailers, “It’s good right now but it could erode their full-price stores in the long term. I think retailers have to tread very carefully in that area because of brand image and perceptions of quality. Plus, consumers are just smart shoppers now. If they know they can hit up the outlet store for the same merchandise, they’re just going to do that.”

Of course, when deployed well, discounting can be a powerful promotional tool. “Select promotions are not a bad thing,” says Dahlhoff. “They can help you with store traffic, promoting different categories, getting people to try something new, or increase loyalty for certain merchandise.”

But, fostering a greater sense of value, whether through loyalty programs or unique brand experiences, can entice shoppers without lowering prices. “You always want to get out of the pricing game,” Dahlhoff continues. “You want to focus on all of the other benefits that you can provide to customers.”

And fast fashion retailers often use pull different levers to drive footfall and sales. “The idea that Zara really capitalised on is if you like something in the store you better get it because there’s no guarantee that it’ll be there tomorrow,” says Bahulkar. This creates a panic in the mind of the consumer, which can prompt them to purchase. “[It’s] a fundamental shift in the traditional retail mindset, which generations of retailers grew up on, of never having product out of stock,” he explains.

“The customer has fundamentally changed,” Bahulkar continues. “They’ve become much smarter, less loyal and they want what they want. The focus on the product and the uniqueness and the appeal is becoming much more important.”

Editor's Note: This article was revised on April 28th, 2016. A previous version of this article misstated that Saks Fifth Avenue operates 38 full-price locations. This is incorrect. The retailer has 40 full-price stores.